Towards a framework of customer value assessment in B2B markets: An exploratory study

Industrial Marketing Management 42 (2013) 1307–1317

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Industrial Marketing Management

Towards a framework of customer value assessment in B2B markets: An exploratory study Joona Keränen ⁎, Anne Jalkala 1 Lappeenranta University of Technology, Department of Value Network Management, Faculty of Industrial Management, P.O. Box 20, 53851 Lappeenranta, Finland

a r t i c l e

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Article history: Received 16 November 2012 Received in revised form 31 May 2013 Accepted 8 June 2013 Available online 8 July 2013 Keywords: Customer value assessment Customer value Process framework B2B markets Integrated solutions

a b s t r a c t This paper examines the key processes and activities of customer value assessment in business-to-business (B2B) markets. Given that an increasing number of B2B firms are providing combinations of products and services, or integrated solutions, the present study examines customer value assessment from the solution supplier's perspective. Specifically, based on an exploratory field study and in-depth interviews with 18 managers in three different firms, the present study identifies five key processes (i.e., value potential identification, baseline assessment, performance evaluation, long-term value realization, and systematic data management) and 11 related activities involved in customer value assessment in B2B markets, and integrates them into a managerially grounded framework. The findings from this study contribute to the literature on customer value and solution research, and provide useful insights for managers on how to assess the value delivered by their offerings to customers. © 2013 Elsevier Inc. All rights reserved.

1. Introduction Creating and delivering superior customer value is considered one of the cornerstones in business-to-business (B2B) marketing (e.g., Anderson, Narus, & Narayandas, 2009; Lindgreen, Hingley, Grant, & Morgan, 2012; Ulaga, 2011). Research on value-based purchasing, (Anderson & Wynstra, 2010), value-based selling (Terho, Haas, Eggert, & Ulaga, 2012), pricing (Liozu & Hinterhuber, 2013), and value (co)creation (Edvardsson, Tronvoll, & Gruber, 2011; Jaakkola & Hakanen, 2013) emphasizes that business marketers need to better understand how to create, communicate and deliver value to their customers. This is particularly prominent in the context of “integrated solutions”, (e.g., Jacob & Ulaga, 2008; Storbacka, 2011; Windahl & Lakemond, 2010), that aim to offer greater potential for value creation beyond the individual product and service components (Evanschitzky, Wangenheim, & Woisetschläger, 2011; Ulaga & Reinartz, 2011). Yet, understanding on how the value potential of solutions can be evaluated is limited, and frameworks to understand how suppliers and customers can assess their value are needed (Ulaga & Eggert, 2006; Anderson & Wynstra, 2010). In the customer value literature, considerable effort has been expended to examine how suppliers create and deliver value to customers (e.g., Payne & Holt, 2001; Lindgreen & Wynstra, 2005; Haas, Snehota, & Corsaro, 2012); however, less research has been conducted

⁎ Corresponding author. Tel.: +358 40 482 7081; fax: +358 56212644. E-mail addresses: joona.keranen@lut.fi (J. Keränen), anne.jalkala@lut.fi (A. Jalkala). 1 Tel.: +358 40 128 2884. 0019-8501/$ – see front matter © 2013 Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.indmarman.2013.06.010

to examine the process through which the realized customer value is assessed (Woodruff & Flint, 2006, p. 188). Customer value assessment refers to quantifying and communicating the value created for (and with) customers (c.f. Anderson, Narus, & van Rossum, 2006; Payne & Frow, 2005). Prior research has advanced our knowledge by developing specific tools and identifying best practices for customer value assessment (e.g., Anderson, Jain, & Chintagunta, 1993; Anderson et al., 2006; Ulaga & Chacour, 2001), but they are designed predominantly for physical products, and have difficulties with assessing the value of complex and service-intensive offerings. Consequently, scholars have contended that “improved ways of measuring the delivery of customer value are required” (Payne, Storbacka, & Frow, 2008), and highlighted developing new methods for customer value assessment as a key research priority (e.g., Lindgreen et al., 2012; Payne & Holt, 2001). In the solutions literature, delivering integrated combinations of products and services instead of individual components is regarded as a key to differentiation and higher margins (e.g., Evanschitzky et al., 2011; Ulaga & Reinartz, 2011). However, research explicating how solution offerings deliver value to customers, or improve their businesses, is scarce. In fact, several studies in the solution domain suggest that industrial firms often struggle to develop the skills and processes needed to quantify the value of solutions (Sawhney, 2006; Sharma & Iyer, 2011; Storbacka, 2011). In practice, customer value assessment represents an “Achilles heel” for many industrial firms that provide combinations of products and services, i.e. hybrid offerings and customer solutions (Tuli, Kohli, & Bharadwaj, 2007; Ulaga & Reinartz, 2011). Accordingly, more understanding is needed on specific processes and activities that relate to customer value assessment.

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This study focuses on examining customer value assessment from the solution supplier's perspective. Specifically, we examine the processes and practices that suppliers undertake in their value assessment activities. To address this both academically and managerially relevant issue, we examine the following research questions: 1) What are the key processes for customer value assessment? 2) What are the specific activities that comprise each key process? Given the sparse literature on customer value assessment in B2B markets, we answer these questions through a qualitative in-depth study that applies a grounded theory approach (Glaser & Strauss, 1967). Based on insights generated through in-depth interviews with 18 managers from three industrial firms, we develop a tentative framework for customer value assessment comprising five key processes: value potential identification, baseline assessment, performance evaluation, long-term value realization, and systematic data management, and 11 related activities. The findings from this study contribute to the extant literature on customer value in B2B markets (e.g., Lindgreen et al., 2012) and solutions research (e.g., Evanschitzky et al., 2011) by shedding light on the key processes and activities that relate to customer value assessment. From a practical perspective, this study offers important insights for managers on how to assess the value that solutions deliver to customers. The rest of the manuscript proceeds as follows. First, we review the extant literature on customer value in B2B markets and the solutions literature, and consider current approaches to customer value assessment. Second, we present our qualitative study and, based on the findings, tentatively propose an empirically grounded framework for customer value assessment in B2B markets. Finally, we present our conclusions, and suggest managerial implications and areas for future research. 2. Literature review 2.1. Customer value in B2B markets Customer value is one of the most central themes in marketing and it has been discussed in several different streams of research (e.g., Lindgreen & Wynstra, 2005; Lindgreen et al., 2012). Customer value is typically conceptualized as a trade-off between the benefits and costs involved in an exchange (e.g., Ulaga & Eggert, 2006). Benefits and costs are always subjective perceptions, determined in the customer's mind (Payne et al., 2008; Vargo & Lusch, 2008) rather than specific features of a particular offering declared by the supplier (Corsaro & Snehota, 2010). Benefits and costs can be understood both in monetary and non-monetary terms (Biggeman & Buttle, 2012) such as improved revenues and costs (Grönroos, 2011), or increased trust, reputation, ease of use and decreased time, effort, and energy expended in the exchange (Aarikka-Stenroos & Jaakkola, 2012). The contemporary literature (e.g., Lindgreen & Wynstra, 2005; Lindgreen et al., 2012) divides customer value research into two related streams: 1) the value of goods and services (i.e., offerings) and 2) the value of buyer–seller relationships. The first stream tends to focus on the more tangible aspects of customer value, such as the functionality or the practical utility of an offering, emphasizing customer value in monetary terms.2 Recent studies in this stream suggest that suppliers should emphasize the benefits of their offerings that have the greatest impact on customers' profits (e.g., Anderson et al., 2006; Terho et al., 2012; Wouters, Anderson, Narus, & Wynstra, 2009). The second stream tends to focus on more intangible aspects 2 For example, several studies in this stream adopt or draw from Anderson, Jain, and Chintagunta (1993) definition of customer value as the “worth in monetary units of the set of economic, technical, service and social benefits received by a customer firm in exchange for the price paid for a product offering.”

of customer value, such as reputation, skills or knowledge, often referred also as intangible assets (c.f. Whitwell, Lukas, & Hill, 2007). For example, the resource-based view of the firm (Barney, 1991), service-dominant logic (Vargo & Lusch, 2008), and the resource advantage theory (Hunt & Morgan, 1995, 1996), among others, consider intangible assets as important sources for customer value. Although intangible assets are often considered a non-monetary source of customer value, in the B2B context, the support of a supplier will always have some (direct or indirect) effect on the economic result of a customer's business (Grönroos, 2011). Recent studies have provided insights on how the intangible aspects of customer value can be assessed for profits (e.g., Hogan, 2001; Walter, Ritter, & Gemünden, 2001; Baxter & Matear, 2004), but they have focused mainly on the value realized for and by the supplier. Overall, this study contributes primarily to the first stream, by examining how solution suppliers can assess the value that their offerings deliver to customers.

2.2. Customer value in the solutions literature In the solutions literature, much of the research supports the notion that integrating individual components into solutions provides more value to a customer than would be delivered by the components alone. (Evanschitzky et al., 2011; Sharma & Iyer, 2011). From this perspective, suppliers do not create value solely by providing products and services to customers, but by assisting customers in their own business processes through the provision and integration of resources that fulfill specific functions for the customer (Grönroos, 2011). This is especially prevalent in B2B markets, where an increasing number of industrial firms are moving from pure product offerings towards providing combinations of product and services, or even the entire systems, (Windahl & Lakemond, 2010; Ulaga & Reinartz, 2011). Instead of bundles of products and services, customers tend to view these offerings as relational processes, comprising requirement definition, customization and integration, deployment and post-deployment support (Tuli et al., 2007). The added benefits that customers perceive from solutions are related to both skillful integration products and services into a functioning whole that fulfills customers' collective and relational goals, and to the relational processes that improve customer's operations and productivity (Tuli et al., 2007; Epp & Price, 2011; Ulaga & Reinartz, 2011). Accordingly, customers' willingness to pay higher prices is related to the supplier's ability to communicate the value that results from the offering's functionality and the relational processes (Tuli et al., 2007). Despite the high value potential involved in solutions business, research on the value solution offerings deliver to customers remains scarce (Cornet et al., 2000; Jaakkola & Hakanen, 2013). In the solutions literature, scholars refer broadly to benefits that help “solving the end customer's problem” (Sawhney, 2006), or “satisfying customer needs” (Tuli et al., 2007), but rarely explicate their specific implications to a customer's business, especially in terms of added revenues or cost savings. From the customers' perspective, solution offerings should shift the responsibility and risks involved in selected operations to suppliers (Stremersch, Wuyts, & Frambach, 2001), and result in cost savings, performance guarantees, optimized processes, customized offerings and, ultimately, a “better or easier life for the customer” (e.g., Miller, Hope, Eisenstat, Foote, & Galbraith, 2002, p. 3; Macdonald, Wilson, Martinez, & Toossi, 2011). However, the value customers receive from a supplier's offering is often difficult to evaluate (Lindberg & Nordin, 2008) as it is often co-created with the supplier (Aarikka-Stenroos & Jaakkola, 2012), and realized in-use (Grönroos, 2011) and over time (Tuli et al., 2007). Empirical studies indicate that, in reality, the value customers realize from solutions often falls short of expectations (Tuli et al., 2007; Epp & Price, 2011).

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In practice, solution suppliers often lack the capabilities to quantify the value delivered by their offerings (Storbacka, 2011). Consequently, value assessment represents an “Achilles heel” for many industrial firms that provide combinations of products and services, i.e. hybrid offerings and customer solutions (Tuli et al., 2007; Ulaga & Reinartz, 2011), and most of them are struggling to make their offerings profitable (Krishnamurthy, Johansson, & Schlissberg, 2003). Several studies suggest that, to offset high investment costs and extract higher margins from solutions, suppliers should price their solutions based on the value realized by customers (e.g., Cornet et al., 2000; Sawhney, 2006; Bonnemeier, Burianek, & Reichwald, 2010). However, the pricing literature indicates that the biggest obstacle to implementing value-based pricing is the difficulty of customer value assessment (Hinterhuber, 2008). Recent studies in the solutions field indicate that, without a deep understanding on the value realized by customers, suppliers revert to cost-based pricing strategies (e.g., Tuli et al., 2007; Sharma & Iyer, 2011).

2.3. Current approaches to customer value assessment Understanding how customers perceive value is considered a key competitive advantage (Woodruff, 1997; Ulaga & Eggert, 2006), and firms typically conduct customer value assessments to determine the worth of their offerings to customers. Customer value assessment3 refers here to the process of evaluating and communicating the value created for (and with) customers (c.f. Payne & Frow, 2005; Anderson et al., 2006). In consumer markets, customer value assessment methods are usually grounded on the customer satisfaction and service quality literature, and focus on evaluating consumers' feelings of satisfaction based on comparison between expected and perceived quality (Payne & Holt, 2001). This is in line with the utility theory, which assumes that consumers make purchase decisions to maximize satisfaction gained from purchased offerings (Bach, Flanagan, Howell, Levy, & Lima, 1987; Bowman & Ambrosini, 2000). Hence, as customer satisfaction is a relatively strong predictor of buying behavior in consumer markets (e.g., Mittal & Kamakura, 2001), consumer marketers tend to utilize customer satisfaction surveys as a key method to assess value (e.g., Oliver, 1999). On the other hand, the service quality literature views value largely as a trade-off between quality and price. Notable value assessment methods in this stream include Value Analysis (Miles, 1961; Gale, 1994) and SERVQUAL (Parasuraman, Zeithaml, & Berry, 1988; Zeithaml, Berry, & Parasuraman, 1996), which measure customers' perceptions of value based on expected and perceived quality. However, although customer satisfaction and service quality are widely applied measures in consumer markets, they have been criticized for neglecting monetary effects (Reichheld, 1996; Woodruff, 1997) and the long-term outcome for customers, i.e. the value-in-use perceived by a customer (Buttle, 1996; Macdonald et al., 2011). In B2B markets, scholars have developed specific tools (e.g., Ulaga & Chacour, 2001) and identified best practices that industrial firms employ for customer value assessment, such as focus groups and importance ratings (e.g., Anderson et al., 1993). However, these methods work best with physical products, and have difficulties with complex and service-intensive offerings. Anderson et al. (2006) found that best practice suppliers employ advanced tools, such as customer value models and value case histories, to demonstrate the value of their offerings, but, few firms employ them systematically. Also, the purchasing literature discusses various activity-based costing applications, such as total cost of ownership (Wouters, Anderson, & Wynstra, 2005) and

3 Customer value assessment is often used interchangeably with terms such as value analysis (Ulaga & Chacour, 2001), value evaluation (Woodruff, 1997), and value judgment (Flint, Woodruff, & Gardial, 2002).

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life-cycle costing (e.g., Asiedu & Gu, 1998), although these are usually applied to product-related costs (Anderson & Narus, 1995) and do not take benefits into account. However, as the value of solution offerings is not only delivered through products and services (c.f. Tuli et al., 2007), but also by sharing and integrating resources that help customers to realize their business goals (e.g., Payne et al., 2008; Epp & Price, 2011; Macdonald et al., 2011), there is a need for a more holistic approach to customer value assessment. This is echoed by Ravald and Grönroos (1996) and Ritter and Walter (2012), who point out that value assessment should not be limited to single transactions, but take into account all benefits acquired and costs incurred by customers during their collaboration with a supplier. Yet, only little research has been conducted to describe the processes through which customer value is assessed (Woodruff & Flint, 2006, p. 188). For example, in their recent review on the value literature in B2B markets, Lindgreen et al. (2012) argue that, as our understanding of customer value has evolved from objects of exchange towards processes of exchange, we need new methods to assess customer value in B2B markets. In the solutions literature, several authors have pointed out that solution suppliers need specific processes and tools to document and communicate the value-in-use their offerings create for customers (e.g., Oström et al., 2010; Evanschitzky et al., 2011; Storbacka, 2011; Ulaga & Reinartz, 2011; Kindström, Kowalskowski, & Nordin, 2012). 3. Methodology In order to respond to the calls to 1) develop new methods for customer value assessment in B2B markets (Lindgreen et al., 2012) and, especially, for solution suppliers (e.g., Evanschitzky et al., 2011), and 2) specifically to Woodruff and Flint's (2006) call to explore the process of customer value assessment, we empirically examined the key processes and activities involved in customer value assessment in B2B markets. Given that the prior knowledge on customer value assessment in B2B markets is scarce, we adopted a grounded theory approach (Glaser & Strauss, 1967). Similar to Tuli et al. (2007), and Ulaga and Reinartz (2011), we aimed to develop our framework from a managerial perspective. Specifically, we conducted in-depth interviews with 18 managers in three industrial companies, and derived insights on the key processes and related activities involved in customer value assessment from the supplier's perspective. This approach is particularly suited to the present study, as customer value assessment represents a major challenge for industrial firms (Sawhney, 2006; Ulaga & Reinartz, 2011), but the academic literature lacks a clear and thorough examination on the key processes and activities related to it (c.f. Payne & Holt, 2001; Payne & Frow, 2005). 3.1. Data collection Consistent with prior studies (e.g., Tuli et al., 2007; Terho et al., 2012), we employed theoretical sampling and conducted interviews with 18 senior managers across functions and hierarchical levels from three industrial companies that operate in the metallurgical, chemical, and paper and fiber technology industries (see Table 1). These industries are characterized by complex and service-intensive offerings, whose value is often difficult to assess. To select experienced senior managers involved in activities relating to customer value assessment, the interviewees were chosen by internal experts in each of the companies. The majority of the informants occupied positions such as sales director, sales manager, vice president, or business development manager, and the average industry experience of the informants was 15.9 years, indicating substantial management and industrial experience (c.f. Payne & Frow, 2005). The number of informants is consistent with sample sizes recommended for exploratory research (McCracken, 1988, p. 17). The

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Table 1 Profiles of firms participating in the study. Firm

M

C

PF

Industry Sales (€M) Employees Main customers

Metallurgical technology N1300 N3800 Metals and minerals processing industries (i.e., mining companies, energy producers)

Chemical technology N2200 N5000 Water-intensive industries, including pulp and paper, municipal and industrial water treatment, oil and gas, and mining industries

Paper and fiber technology N6600 N30,000 Pulp and paper, chemical, power generation, and fabrics industries

interviews were semi-structured, including open-ended questions on the companies' current value assessment practices and, in particular, on key activities involved in a systematic customer value assessment. This approach enabled a profound focus on the issues that emerged during the interviews. To facilitate the process, informants were asked to describe the central phases of customer value assessment, which were then probed further to identify different activities and their specific properties. In addition, internal documents, including process frameworks, strategic plans, documented business cases, white papers, project diaries, and training material were used as a secondary data source to elaborate and confirm the interview data.

3.2. Data analysis and interpretation The interviews lasted between 41 and 117 min and were conducted face-to-face, except for interviews conducted by telephone with three respondents from the metallurgical company and two from the chemical technology company. Each interview was audiotaped and transcribed verbatim, which resulted in 238 pages of text. An overview of the sample characteristics appears in the Appendix A. Nvivo9 software was used to code the interview data and assist with the analysis process. To identify the key processes and related activities in customer value assessment, we employed grounded theory coding, involving open, axial, and selective coding (e.g., Corbin & Strauss, 2009). To facilitate the data analysis, theoretical memos were written during the interviews to assist with interpretation and to identify differences and similarities within and across the interviewed firms (c.f. Creswell, 2013, p. 89). The lead researcher performed the open coding, where the interview transcripts were analyzed line-by-line, and broken down into discrete parts. The data were classified based on the activities involved in the customer value assessment process. To ensure that we captured all relevant activities emerging from the data, we labeled the activities with in-vivo codes, grounding them on each manager's own language (Corbin & Strauss, 2009). After the first round of open coding, we compared the results, and jointly developed a preliminary

coding plan that 1) listed the identified activities and emerging key processes, 2) provided a label and definition for each activity and key process, 3) specified the properties of each activity and key process, and 4) delivered an example to illustrate its meaning and content. To enhance the analysis, we conducted a second round of open coding to capture all variations in the data. At this point, we aimed to be as inclusive as possible, and coded both the “experience-near” to “experience-distant” (Geertz, 1973) activities in the data. For example, we included activities that managers had not necessarily experienced themselves, but knew were involved in other projects that involved customer value assessment. After the second round of open coding, consistent with Tuli et al. (2007), we relied on three key criteria to decide on whether to include a specific activity. First, is it applicable beyond a very specific context? Second, was it mentioned by multiple participants? And third, does it go beyond the obvious to provide interesting and useful conclusions? For the axial coding, we compared the activities according to their properties and dimensions, and then organized them into tentative categories and sub-categories (Spiggle, 1994), which led to the emergence of five preliminary processes. At this point, a tentative framework began to emerge, with the activities involved in specific processes. Following constant comparison logic (Corbin & Strauss, 2009), we first analyzed the emerging processes within firms. To enhance our understanding of the firms' specific processes, we re-read the interview transcripts to confirm our initial findings. After refining our interpretations of each firm's specific processes, we moved to comparing and contrasting them between firms, and also against the literature (c.f. Corbin & Strauss, 2009). Finally, for the selective coding, we integrated all the refined key processes and related activities into an overall framework.

4. Findings Based on the qualitative interviews with 18 managers, we identified 11 activities involved in customer value assessment, which led to the emergence of five key processes comprising 1) value potential

Table 2 Results of in-depth interviews with 18 managers. Key processes and related activities for customer value assessment

Frequency of activities mentioned by managers

Process title

Main activities included in the process:

Total

M

C

PF⁎

1) Value potential identification

Identifying customer's explicated needs Understanding customer's processes Understanding the financial implications for customer's business Determining customer's current performance Specifying mutual outcomes Conducting trial runs Specifying the value impact for customer's performance Verifying the realized customer value Documenting the realized customer value Collecting relevant customer data Sharing relevant customer data

15 12 11 12 10 13 11 13 14 17 14

5 4 3 5 2 5 4 5 6 6 5

6 6 4 4 4 5 5 4 4 6 5

4 2 4 3 4 3 2 4 4 5 4

2) Baseline assessment 3) Performance evaluation 4) Long-term value realization 5) Systematic data management

Note: M = metallurgical technology firm; C = chemical technology firm; PF = paper and fiber technology firm. ⁎ One of the interviews involved two managers; hence, maximum frequency for PF is 5 and maximum total is 17.

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identification, 2) baseline assessment, 3) performance evaluation, 4) long-term value realization, and 5) systematic data management (see Table 2). The interviewees explained that they did not have a company-wide approach to customer value assessment, but they considered the activities that regularly appeared in the interview data essential for systematic customer value assessment. The data analysis indicated that the identified processes do not necessarily follow each other in a linear fashion, but may overlap and be iterative. However, the order of the processes and activities is reported here for illustrative purposes, and it reflects the general perspective shared by the interviewees. In particular, the identified activities are involved in the assessment of complex and service-intensive offerings; with regard to simpler product offerings, some of the activities may be omitted. In the following, we examine the identified key processes and activities in more detail, with illustrative quotations from the interviews.

certain categories (e.g., chemical expenses; maintenance service expenses) can reduce their customer's total costs in the long run. Essentially, this activity aims to translate the identified needs into monetary terms, defining how a supplier's offering can add value to its customer's bottom line. Several informants emphasized the need to access their customer's key decision makers, because usually they had only the necessary understanding on the financial drivers critical to their business:

4.1. Value potential identification

The findings suggest that the second key process for customer value assessment is baseline assessment, which is concerned with assessing a customer's current situation prior to deploying the supplier's offering. This assessment is then used as the basis for comparing the customer's situation after deployment in subsequent performance evaluation and long-term value verification processes. The informants indicated that determining their customer's current performance was crucial as it provides a reference point against which to assess the impact of specific performance improvements. Also, as the customer might sometimes overestimate its current performance, establishing a mutually agreed starting point ensures an equal understanding on the current situation, which helps to avoid future disputes over improved performance. However, a few informants noted that, if the supplier's compensation is based on its customer's performance, the customer might be purposefully motivated to underestimate its current performance levels. One informant explained this as follows:

The findings suggest that the first key process for customer value assessment is value potential identification, which is concerned with understanding how a supplier can add value to its customer's business. Typically, customer value assessment was considered to begin by identifying the customer's explicated needs, which provide a starting point and initial boundaries to define how the supplier can add value to its customer's business. The informants explained that they typically had to engage with various representatives from the customer firm to obtain a thorough understanding on the customer's key needs, which were then jointly elaborated through continuous dialog, which sometimes lasted for weeks or months: “These things [assessments] start with a customer contact, where we identify together with the customer that there is a need for improvements, for example changing legislation or increasing production, and then this information goes back to our R&D and marketing … and in the ideal case, it goes around in a loop between us and the customer, constantly evolving in a way that eventually we have a good solution that adds value to the customer's process.” As customers are not always able to specify their ultimate problem, or the full extent of their needs, understanding the customers' processes to detect untapped needs and sense upcoming expectations of which customers are currently unaware was considered important. It was not unusual for the supplier to be more knowledgeable about particular processes than the customers themselves and, by utilizing their accumulated experience, suppliers were able to recognize opportunities or situations with the potential for resources to be deployed in a more efficient and/or effective manner (c.f. Bonney & Williams, 2009). One informant described this as follows: “You need to understand the customer's processes and actively think how and from where the customer gets the biggest value compared to what he is asking for. In practical terms it means that the seller goes through the processes with the customer and listens between the lines what is really important for them, and then makes the value argument based on that.” The informants reported that adding value to their customers' businesses culminates eventually in reducing customers' costs or increasing their revenues, thus understanding the financial implications for a customer's business was considered imperative. The informants explained this through the need to understand what it means in monetary terms to make technical changes to a customer's processes or to choose different solution options and, in particular, how higher expenditures in

“We have to become more involved in their [customer's] organization on a vertical basis, not just calling into the purchasing department, but where appropriate going up the chain to the managers and directors, to the senior level or we can't really understand the financial drivers that impact their company.”

4.2. Baseline assessment

“In order to show that the oil operator can produce more barrels from oil sources per day by using our solution, we need to know how many barrels he is currently producing, basic baseline benchmarking. And then, if we know the price of oil at the operator level, we know how many barrels they are currently producing, and how many times they have to stop production to manage the production line, then in our example our solution lets them produce without breaks, and then we can calculate the added revenue from there.” Determining the customer's current performance was usually followed by specifying mutual outcomes including technical outcomes such as increasing efficiency or productivity, and financial outcomes such as increasing cost savings or profitability. This is in line with Lindberg and Nordin (2008), who point out that buyers objectify complex offerings by transforming internal needs into clearly specified outcomes achieved with the supplier. The specified outcomes express the expected benefits from the supplier's offering and define the potential value the customer will receive. Sometimes a lack of time or intense competition forced the suppliers to neglect the outcome specification; however, suppliers usually put a lot of effort into specifying the mutual outcomes: “These things are always based on specifications. It might be three pages or 300 pages, where we specify precisely what the delivery includes and is supposed to achieve … The things the customer wants to realize in their upcoming investments or maintenance activities, the liability, the delivery, the content, they are specified, and then we agree on paper that this is how we operate within this timeframe and this is how much it costs. This is what you benefit and this is how much we benefit. So it will be clearly specified

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what are the expected outcomes from the customer's side and what we are committed to do.”

4.3. Performance Evaluation The findings suggest that the third key process for customer value assessment is performance evaluation, which is concerned with evaluating the actual value impact on a customer's business. The informants indicated that, due to differences in customers' processes, it was usually difficult to estimate in advance the exact scope and size of the impact their offerings' had on a customer's business. Conducting trial runs prior to deploying their offering was frequently mentioned as a key activity to help the suppliers evaluate how their offering would improve their customers' processes on small scale. Trial runs enhanced the supplier's own understanding on the value its offerings deliver in various customer applications, and also provided customers with concrete evidence of the offerings' potential performance implications. The described trial run activities ranged from supplier led laboratory tests and pilot plants to on-off tests and beta devices operated by the customer. Consider the following excerpt: “We have pilot projects where we use beta versions for trial runs to ensure that the equipment works in an optimal way. As an example on services, paper machine roll cover development has a very important role. We have the material development inhouse and then we make trial runs together with customers: roll covers are tested in real production machines to get feedback on how the beta version works, what the operators' experiences are and what needs to be developed further.” In particular, trial runs were considered instrumental in specifying the value impact on a customer's performance. Several informants explained that they had different value calculators at their disposal, such as spreadsheet tools and virtual simulators (c.f. Anderson et al., 2006), but they were designed to estimate the performance of specific products. In contrast, trial runs enabled the suppliers to identify all the improved performance parameters in a customer's processes that were associated with the employment of their offering, and subsequently to specify their impact on the customer's cost and returns. Several informants emphasized that trial runs were particularly important in identifying indirect benefits for customers' processes, which were hard to perceive in advance, such as reduced energy consumption, optimized resource usage or improved working conditions. The following quotations illustrate these findings: “Compared to production scale, it is a much smaller paper machine, but it is armed with a multitude of sensors, and we can analyze how much it consumes and how much vacuum it requires, and based on this we can calculate all kinds of results. When we put it to the production scale, we know that the water extraction or electricity consumption will be in this level, and then the same structure can be tested elsewhere as well; for example, we can say that you will have this in your headbox, and it will give you this kind of results with this kind of consumption levels.”

“A typical way to do it with control or monitoring systems is to have two parallel production lines, one with our system and the other without. And then we compare them, how the line with our system works compared to the old one without the system. We try to locate the improvements, and then we try to define how these improvements benefit the customer.” The interview data suggest that, depending on the size and importance of the offering, the performance evaluation process

can be conducted either prior to the actual delivery, as a true “pilot project”, or after delivery over a specific evaluation period. Usually, offerings more critical to a customer's core business processes, such as turnkey plants or production lines, were evaluated prior to full deployment, while less critical offerings, such as equipment and process optimization services, were evaluated after deployment. 4.4. Long-term value realization The findings suggest that the fourth key process for customer value assessment is long-term value realization, which is concerned with ensuring that customers have actually received the promised value. The informants emphasized that verifying the realized customer value was a crucial but challenging activity as the value-in-use delivered by their offerings was usually accrued in the long run, and sometimes increased over time as customers, often with the help of the supplier, learnt to operate the offering more efficiently. One informant explained this as follows: “You need to follow it regularly over the long-term, for example, how many things have changed after two years of use. You could imagine that before our system they were at level 1, after deploying the system they go higher, say to level 1.5, and when they learn how to use it optimally, or we train them to use it optimally, then after two years their level can be 2.1. It is not necessarily a linear, but definitely an ascending value trend … overall, the value assessment process should include two or three steps, the baseline assessment, the assessment after the deployment, and then the long-term assessment.” The informants from the chemical company explained that they conducted semi-annual meetings with their selected key accounts to verify whether previously specified outcomes have been met. Informants from the paper and fiber technology company reported that they established joint steering groups for major customer projects, which monitored the projects' progress regularly, and possibly for several years after the initial deployment. The customer's participation in value verification was considered critical, and several informants commented that customer involvement should be more formally defined at the beginning of sales projects. Currently, however, due to time and resource pressures relating to either the supplier or the customer, long-term value verification was more often occasional than systematic. Several informants highlighted the need for remote monitoring technologies that would make regular value verification easier and less resource consuming for both parties. Overall, the need to verify realized value-in-use on a regular basis supports the argument that customer value assessment should be regarded as an ongoing process between a supplier and its customer, rather than as an assessment made only at the point of sale (c.f. Tuli et al., 2007). The majority of informants underlined the fact that documenting realized customer value is a critical activity, and case studies, success stories, and joint articles were frequently mentioned as typical ways to document the verified customer value. A typical case study described the customer, the problem, the supplier's offering, and the benefits received by the customer. Expressing delivered customer benefits in monetary terms was considered especially important: “If we can show that we have provided these offerings previously to x amount of customers, and these customers have benefitted from them, then nothing is better than being able to show that they brought more money to the customer; for example, 50,000

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Euros a month through chemical savings. That's what our salespeople want, documents that show this with the customer's signature. That has a very strong effect.” However, several informants commented that documented customer cases usually emphasized technical details, such as the content of the offering or the improved performance parameters, but rarely specified the actual monetary value (e.g., cost savings; increased profits) realized by the customer. One informant lamented: “We are at a good level in documenting the mechanical improvements; for example, we guarantee production and quality, and those we can follow in detail through production diaries. But the overall monetary value for the customer's business. That we are not able to get, and that is something that we need to get better at in a long-term.” Several informants pointed out spontaneously that specifying the monetary impact on a customer's business was often a significantly difficult task. Customers' reluctance to share their operating costs, the lack of proper baseline assessment, and information sharing between the suppliers' business units were frequently mentioned as key challenges to translating delivered benefits into actual cost savings or increased profits. Consequently, the need for systematic data management was consistently emphasized over the course of the interviews.

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for data collection, the relevant information was usually widely dispersed across the organization. Efforts were made by the three firms to establish centralized procedures for data management; however, most of the informants felt that relevant data remained largely in desk drawers, separate project files, and as tacit knowledge in people's minds. Consequently, sharing relevant customer data across functions was frequently mentioned as problematic because existing CRMsystems were considered too heavy or complex for sharing important information quickly, and data collection responsibilities between the units were often unclear. For example, in each interviewed firm, service personnel were considered an important source of customer data due to their first hand access to customers' processes. However, the sales managers in our sample frequently complained that it was challenging to get their service, project management, and R&D units to collect and share the required customer data as they were often unaware of the sales unit's needs. For example, one of the interviewed sales managers asserted: “It should be taken into account in the sales processes that we need this kind of data from the delivery projects to ensure that we have delivered added value to the customer. It is the project manager's responsibility to make sure we have determined the baseline and the end performance, but all our delivery, service, and sales processes have to support that, so it has to be thought through that this is the data we need and this is the way to collect it.”

4.5. Systematic data management The findings suggest that the fifth key process for customer value assessment is systematic data management, which was considered essential for managing all other processes involved in customer value assessment. Collecting relevant customer data from all customer contact points was considered an important, although challenging, activity. Several sources of customer data were mentioned in the interviews, including meetings, negotiations, trial runs, and customers' production diaries. However, the extent of the available data was usually dependent on the customer's willingness to share the information. Often, several of a supplier's units were responsible for different parts of the sale and deployment of its offering. As every unit typically had its own routines

Overall, effective data management was considered central to customer value assessment, due to the need to collect and coordinate systemically a large amount of information to generate a detailed analysis for the customer on all promises made and actions taken. The proposed framework that summarizes the key processes and activities involved in customer value assessment in B2B markets is illustrated in Fig. 1. 5. Discussion and implications The purpose of the present study was to examine the key processes and activities involved in customer value assessment in B2B markets, and we analyzed this from the perspective of three

Baseline Assessment Determining the customer´s current performance Specifying mutual goals

Performance Evaluation Conducting trial runs Specifying the impact on the customer´s performance

Long-Term Value Realization Verifying the realized customer value Documenting the realized customer value

Fig. 1. A proposed framework for customer value assessment.

Systematic Data Management Collecting relevant customer data Sharing relevant customer data

Post-Delivery

Pre-Delivery

Value Potential Identification Identifying the customer´s explicated needs Understanding the customer´s processes Understanding the monetary impact on the customer´s business

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solution suppliers. Although our findings are exploratory, they provide important contributions to the extant literature on customer value in B2B markets (e.g., Lindgreen et al., 2012) and in solutions research (e.g., Evanschitzky et al., 2011). First, this study sheds light on the key processes and activities involved in customer value assessment that have received scant attention in the extant literature (Woodruff & Flint, 2006, p. 188). Specifically, the findings from this study suggest that value potential identification, baseline assessment, performance evaluation, long-term value realization, and systematic data management are the key processes involved in customer value assessment in B2B markets. These processes occur both prior to and after delivery of an offering, which indicates that customer value assessment should be regarded as an on-going process, rather than an assessment made only at the point of delivery (c.f. Payne & Holt, 2001; Tuli et al., 2007). The findings suggest that customer value assessment needs to be closely aligned with the relational processes of customer requirements definition, customization and integration, deployment, and postdeployment support identified by Tuli et al. (2007). For example, the value potential identification process enables a supplier to construct a shared understanding with its customer on the different ways how the supplier can add value to the customer's business. In turn, the baseline assessment process enables the supplier to evaluate its customer's current performance in selected improvement areas within the identified value potential prior to delivery of the supplier's offering. The performance evaluation process enables the supplier to analyze the potential effects of implementing its offering, and the long-term value realization process enables the supplier to verify and document that the identified value potential has been realized after the supplier's offering has been delivered. The systematic data management process ensures that relevant customer data are stored and communicated between and during the other processes. In the two studied process technology firms, the metallurgical and chemical technology firms, the interviewees emphasized stark differences between customers' needs and processes, and explained that value potential identification, baseline assessment, and performance evaluation processes had to be separately adjusted to individual customer's operations. In contrast, in the paper and fiber technology firm, which is more akin to a capital goods supplier, each customer usually had rather similar needs and processes that enabled the supplier to adopt a relatively similar approach to the overall process of customer value assessment for every customer. Although preliminary, and based only on three firms, this finding suggests a different picture to Töllner, Blut, and Holzmüller (2011), who argue that delivering customer value through solutions requires more effort in the capital goods industry. Second, although previous research has demonstrated the high value involved in solution offerings (Tuli et al., 2007; Evanschitzky et al., 2011; Jaakkola & Hakanen, 2013), studies addressing how the value solution offerings deliver customers can be assessed remains scarce. Based on the findings, this study has developed a tentative, empirically grounded framework for customer value assessment, which responds to recent calls to develop new methods and tools with which to assess customer value in B2B markets (Lindgreen et al., 2012), particularly in the context of service-intensive solution offerings (Oström et al., 2010; Ulaga & Reinartz, 2011, Kindström et al., 2012). In comparison to earlier research on customer value assessment practices in B2B markets (e.g., Anderson et al., 1993; Ulaga & Chacour, 2001) that have difficulties with complex and service-intensive offerings, the proposed framework offers a more holistic perspective, which takes into account how complex solution offerings improve customers' business processes over time (c.f. Tuli et al., 2007). Specifically, by highlighting the different processes and activities, the framework sheds light on the responsibilities and resources needed during customer value assessment on solution offerings. While

customer value assessment is traditionally regarded as the sales unit's responsibility (e.g., Anderson et al., 2006; Terho et al., 2012), our findings are in line with recent solutions research, which asserts that effective solutions delivery needs support from all functions in the firm (Tuli et al., 2007; Storbacka, 2011). For example, the sales unit is typically responsible for value potential identification, while delivery and service units might be responsible for baseline assessment and long-term value realization. Third, while the extant literature on solutions emphasizes the need for value-based pricing (e.g., Bonnemeier et al., 2010; Storbacka, 2011), only a little insight is offered on how this is done in practice, as there is a lack of methods for translating the perceived customer value into pricing strategies (Sharma & Iyer, 2011, p. 725). The proposed framework suggests a method for translating the value created by solution offerings for customers into pricing strategies. For example, value potential identification and baseline assessment can be used to specify customer baseline performance in selected areas, which is utilized as a basis for setting prices according to the improved performance levels or realized economic results (c.f. Hünerberg & Hüttmann, 2003). In particular, as the framework is geared towards assessing the value that a solution offering realizes for a customer in the long-term, rather than the transaction value of the offering, it can be related to the long-term economic results of the customer, such as increased revenue, cost savings or balance sheet effects (c.f. Storbacka, 2011). By making long-term economic results visible, suppliers can make “gain-sharing” arrangements, where payments are directly linked to the customer's business performance, more attractive to customers (Sawhney, 2006). Suppliers can utilize the proposed framework in making long-term economic results visible, and formulate “gain-sharing” arrangements, where payments are directly linked to the customer's business performance, more attractive to customers (Sawhney, 2006). Finally, while the proposed framework takes into account how complex solution offerings improve customers' business processes over time, our literature review and findings indicate that assessing the intangible value of solutions is highly challenging. Several interviewees explained that customers derived intangible benefits, such as increased skills and knowledge, ease of operations, reduced risk, or improved working conditions, and often appreciate them as add-on benefits. But unless the supplier could specify how the intangible benefits improved its customers' performance, the customers rarely acknowledged the intangible benefits in the price paid to the supplier. On one hand, this might be due to games that buyers play with suppliers, i.e. they do not deliberately want to recognize the intangible value so they would not have to pay for it4 (c.f. Håkansson & Waluszewski, 2013). Alternatively, it might be difficult for a supplier to quantify the monetary impact of intangible benefits that often emerge through interaction and the implementation of a solution offering, such as increased expertise and knowledge, or the sense of relief gained from professional support. For example, due to the high risks and uncertainty inherent in solutions, the reputation and reliability of a supplier are often important criteria for many buyers; however, the added value these elements deliver to the customer is often very difficult to assess.

5.1. Managerial implications For managers, the findings from this study offer four important insights. First, our study indicates that customer value assessment is not just a one-off event that can be conducted by sending a customer

4

We thank the anonymous reviewer for pointing this out.

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satisfaction survey after the solution is delivered. Instead, it is an ongoing process, which begins before and continues long after delivery, often until the end of a solution offering's life-cycle. Managers need to be aware of the long-lasting nature of customer value assessment, and coordinate the different functions and units responsible for the key processes accordingly. Specifically, we recommend that managers pay special attention to long-term value realization, which is the most critical, yet often neglected, process. Solution suppliers are often pressed by time and results, and salespeople, who are typically responsible for the “front-end” of customer value assessment, need to focus on closing the next customers. Therefore, managers must ensure that the responsibility for the long-term value realization process is clearly specified for the sales unit, or smoothly shifted to the service or project management unit. Second, the findings from this study indicate that customers' reluctance to cooperate and centralized purchasing strategies represent typical barriers for customer value assessment. Cooperative customers can be great assets to suppliers, as they provide easier access to their business operations and performance data. However, as the personnel with whom suppliers need to get involved might have very little to do with the actual investment decision, they might be reluctant to sacrifice their time and energy. Therefore, managers need to find ways to motivate and encourage customers' personnel to cooperate, as they are often pivotal to successful customer value assessment. Also, due to the high investment costs involved in solutions, customers often have centralized purchasing or sourcing units. However, sourcing units are often rewarded for lowering short-term costs, and thus tend to evaluate solution offerings based on the lowest price received. Therefore, we recommend that managers find ways to gain access to customers' executives who understand the value potential from the supplier's offering and have enough influence to steer decisions internally in favor of the supplier. Third, if managers do not have time or resources to go through all the processes involved in customer value assessment – or quantify the monetary impact on customers' businesses - they can alternatively use visualization strategies (e.g., Kindström et al., 2012), which rely on qualitative evidence. Advantages of visualization strategies are the ease and low cost of usage. In their simplest form, they might be stickers put on a customer's equipment or tools and spare parts used in customers' processes, or badges on service technicians' uniforms. However, the pitfall of visualization strategies is that they tend to emphasize intangible value and, as such, might not resonate well with buyers who evaluate offerings based on cost savings or lowest price received. Finally, considering that industrial suppliers increasingly seek service-led growth, customer value assessment provides managers with a potential service business opportunity. For example, best practice firms in B2B markets conduct baseline assessments for a fee to help their customers understand how to improve their operations (e.g., Anderson & Narus, 1998). However, although the managers in our study indicated that their accumulated process experience enabled them to identify opportunities for cost reductions and/or performance improvements for customers, this type of service was not commercialized in any of the interviewed companies. Thus, we encourage managers to recognize that they might already have the resources and skills to conduct baseline assessments, and move from service for free to fee.

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considered. First, the present study is limited and context bound to three industries, namely the metallurgical, chemical, and paper and fiber technology industries. Furthermore, the adopted perspective of three solution suppliers emphasizes large scale process industries and “big ticket” items. This might affect the findings. For example, the high frequency of trial runs in our data might not be so prominent with B2B offerings of lesser value. Therefore, an important step for future research is to examine customer value assessment in a broader set of B2B firms to expand the proposed framework, and to generalize the findings towards a more general theory on customer value assessment in B2B markets (e.g., Payne & Holt, 2001; Lindgreen et al., 2012). In particular, as customer value assessment is typically a very challenging exercise, valuable insights could be sought from best practice firms that have systematic tools and practices for customer value assessment (e.g., Anderson et al., 2006). Second, the present study was conducted from the suppliers' perspective and, as such, it provides only the sellers perspective on what represents customer value. This is a major limitation, and examining customers' perceptions of value expected and derived from solutions would complement our findings. In particular, adopting the customer's perspective might shed more light on intangible value and relational benefits delivered apart from the core offering. For example, earlier research clearly demonstrates that customers' perceptions of value can change over time (Beverland & Lockshin, 2003) and are not always related only to monetary gains (Macdonald et al., 2011). Furthermore, the solution literature increasingly assumes that solution offerings provide more value to customers than might be gained individually from their components alone (Evanschitzky et al., 2011). This implies that integrating products and services into complete solutions provides intangible benefits to a customer (i.e., relief or sense of reassurance from not having to purchase and integrate the individual components on their own). Given that a considerable proportion of the value derived from solution offerings might be intangible (Jaakkola & Hakanen, 2013; Prior, 2013), assessing intangible benefits derived from integrated solutions represents a fruitful area for future customer value and solutions research.

6. Conclusions Customer value is one of the key concepts in marketing, and assessing the value delivered to customers is a major challenge for industrial firms that provide solution offerings. In this exploratory study, we empirically examined the process of customer value assessment from the perspectives of three solution suppliers. Based on the findings generated through in-depth interviews with 18 managers, this study suggests a tentative, process-based framework for customer value assessment comprising five key processes: value potential identification, baseline assessment, performance evaluation, long-term value realization, and systematic data management. We have examined these processes in detail, and propose their application in both research and practice. Given the increasing importance of customer value assessment, we hope that our exploratory study offers new insights and fuels further research on this critical area.

5.2. Limitations and future research directions Acknowledgments In this study, we examined the complex phenomenon of customer value assessment in B2B markets from the perspectives of three solution suppliers. Our findings suggest preliminary insights on this increasingly important issue, but given the explorative nature of this study, they come with limitations which need to be

The authors wish to thank the three anonymous reviewers for the comments and insights regarding this paper. The research was conducted in the CLEANTECH SOLUTIONS-project funded by the Finnish Funding Agency for Technology and Innovation.

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Appendix A

Overview of informants and firms participating in the study Nr

Firm

Informant

Date

Duration

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 & 17 18

M M M M M M C C C C C C PF PF PF PF PF

Product manager, process automation Sales manager, automation Development manager Head of service center (telephone interview) Sales director, South-East Europe (telephone interview) Application engineer (telephone interview) Sales manager, oil & mining Vice president, sales, oil & mining Commercialization manager, Municipal & Industrial Key account manager, paper Business development manager, paper (telephone interview) Marketing manager, oil & mining, EMEA (telephone interview) Planning manager Senior paper technology manager Marketing service manager General manager, marketing, service, & product marketing manager, marketing service Vice president, sales

22.06.2011 19.09.2011 19.09.2011 26.09.2011 29.09.2011 30.09.2011 05.09.2011 05.09.2011 05.09.2011 05.09.2011 12.09.2011 14.09.2011 24.08.2011 24.08.2011 25.08.2011 25.08.2011 25.08.2011

82 min 80 min 74 min 55 min 77 min 76 min 49 min 58 min 82 min 74 min 95 min 70 min 80 min 41 min 89 min 117 min 107 min

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